Futures Point To A Flat Open

5/27/2005

 

INTEREST RATES

Since the Treasury market showed some corrective
action this week, one would think that the technical condition is discouraging
fresh selling. However, the Treasury market appears to be developing a split
personality as cash buying interest consistently supports prices, but at the
same time futures players are beginning to take notice of the rising equity
market and the presence improving economic sentiment. The Federal Reserve seemed
to train its focus on the conundrum in long rates again yesterday afternoon and
with Bies also suggested yesterday that long rates "cannot stay" at current
levels the bulls have to be a little concerned.

STOCK INDICES

Asian stocks seem to have set a positive tone
overnight but many suggest those gains were simply in response to the US GDP
number on Thursday. The Japanese stock market actually managed a fresh 6 week
high overnight and that shows the rest of the world is being lifted by the
mostly favorable economic track in the US. This morning the equity market could
get additional support off personal income and spending figures but the market
is beginning to feel a little drag from firming oil market sentiment.

DOW

The June Dow comes into the action this morning holding just under a breakout
point on the charts. However, the bears might suggest that the market has been
unable to defeat a wave of resistance around the 10,540 level throughout this
week! Therefore, the market needs a solid kick from the early US numbers in
order to propel the market into a new, higher trading range. We see no reason
why the rally should stop at current levels and that a run to 10,576 should be
seen in the first two hours of trade today. Even at the overnight highs, the
June Dow remains almost 500 points below the highs of the year. We suggest that
the current economic and political condition is easily better than was in place
when the Dow was at 11,000 earlier this year! Critical near term support comes
in at 10,500 and then again down at 10,475. Buy 30-50 tick breaks in the Dow!

S&P

It is somewhat important that the June S&P manages a rise above the recent
1199.00 level again early today, because a quasi double top at the current
highs, might be cause for another 2-3 day correction next week. It was helpful
technically to see the June S&P manage another higher high yesterday and that
should give the bulls confidence into the action today. However, we think that
path of least resistance is up and that the personal income figures this morning
will keep the bull trend alive. On the other hand, it would not be positive to
see the June S&P fall back below 1196.30 during the action today. We continue to
think that the June S&P is headed back toward the March highs and we suspect
that the market has become strong enough that it can effectively discount
moderate gains in energy prices. Traders should buy corrections of 300-500
points looking for persistent new highs for the move.

FOREIGN EXCHANGE

US DOLLAR

The US Treasury Secretary might have lifted
resistance off the Dollar with the suggestion that the Chinese looked set to act
in October. In our mind, we think that markets were expecting something to
happen well before the 4th quarter. However, China seems to be standing up
against the US pressure and that might facilitate more near term gains in the
Dollar. We also think that the Dollar will continue to benefit from the concern
over the coming EU vote. However, the benefit to the Dollar, off the EU vote,
seems to be a classic buy the rumor, sell the fact type situation. On the other
hand, the US is expected to get more support from the early economic numbers
this morning, as strong consumer spending and rising personal income readings
would seem to suggest more rate hikes and ongoing growth in the US economy. With
China standing up to the US, the Treasury Secretary putting off any move until
October, we suspect that Congress will go ahead and launch into protectionism
actions and that could escalate the chance of a trade war. In the short term,
one can’t argue against more Dollar gains but we would be constantly tightening
profit stops on longs and might even considering banking profits ahead of the
long weekend. Longs at least should consider swapping long futures for long
calls.

EURO

Chirac is pleading with the French to vote on the
Constitution and not on his leadership and that might narrow the edge that the
no camp has into the Sunday vote. Like the Dollar, we think that the Euro has
seen a classic sell the rumor, buy the fact reaction but with French business
sentiment readings posting a surprising drop, it is possible that the average
French citizen looks negatively toward the EU this weekend. We also note
moderate declines in German consumer sentiment this week and that should leave
the Euro downwardly biased for at least the early part of the session today. We
suggest that shorts in the Euro either bank profits, or wrap up those positions
with a short put long call combination.

YEN

The Japanese Yen once again has managed to respect
critical chart support and with the Japanese stock market bouncing off strong US
numbers yesterday and with another set of favorable US numbers expected this
morning, we have to think that the Yen has bottomed. However, we doubt that the
June Yen will be able to forge a rise above critical resistance of 93.25, unless
there is a sign that the Chinese might be set to move sooner rather than later.
With the BOJ talking about when it might begin to reduce liquidity, there is
certainly the chance that the Yen begins to strengthen, especially when one
considers the partially oversold status currently in place.

SWISS

Ordinarily we would have expected the Swiss to have
benefited from the uncertainty toward the Euro but traders are not easily being
pulled into the Swiss on the long side. In fact, the Swiss might have been
marginalized with the alternating focus on the Dollar, Euro and Yuan. Therefore
we suspect that the downtrend will continue in the days ahead.

BRITISH POUND

With a BOE suggestion that a fixed Chinese currency
will spark protectionism, we suspect that the odds of trade war dialogue, will
rise and that could give the Pound an indirect lift. However, while the chart in
the Pound is extremely negative the Pound might have reduced its oversold
condition with the slow and gradual May decline. In other words, the Pound would
seem to be capable of extending the slide, unless something surprising spins out
of the US/Yuan situation.

CANADIAN DOLLAR

Even with the BOE drawing some attention to the
US/Canadian trade balance situation, it is possible that the Canadian manages to
further its respect of the recent consolidation lows around the 79.00 level. In
fact, we continue to think that the Canadian is linking up with the Dollar and
may in a sense benefit from the problems in Europe like the Dollar. However,
those that are long, would be well advised to use tight stops on those
positions.

METALS

OVERNIGHT

London Gold Fix $418.60 -$.15 LME COPPER
STOCKS 44,625 metric tons -1,775 tons COMEX Gold stocks 6.069 ml oz Unchanged
COMEX SILVER stocks 105.0 Unchanged

GOLD

The bulls will suggest that gold has managed to
consolidation above the $416.2 spike low, as if that level is capable of holding
the market. The bears will suggest that the Dollar remains near an upside
breakout point on the charts and the French vote on the EU Constitution this
weekend could be just the factor that puts the Dollar into new high ground
again. While silver and copper have shown periodic strength this week, the gold
market is simply not getting a benefit from the forces driving those markets.

SILVER

The silver market continues to be the leadership
market within the precious metals complex and it would seem like the funds are
responsible for that label. July silver has managed to forge a pattern of higher
lows and with US economic numbers helping to pull global sentiment upward, we
suspect that silver can forge more gains in the wake of favorable US personal
income and spending figures. While the silver market will certainly show a
moderately long small spec and fund long positioning tonight, we doubt that
silver is as vulnerable to concern over that figure as the gold market.

PLATINUM

Another negative chart trade overnight in platinum
would seem to leave the bears in control of prices. We must also note that
platinum has failed to track silver and copper prices this week and instead has
seemed to fall in sync with the gold market. In short, it is very disappointing
that platinum failed to benefit from the idea that strong Chinese copper demand
patterns might also point to favorable Chinese platinum demand.

COPPER

As we expected early this week, copper prices
managed to rise back toward the February through April consolidation, off a
combination of renewed optimism toward Chinese demand, and in general because of
brightening economic prospects in the US. We might add that zinc and aluminum
prices are showing strength and Reuters overnight noted record tungsten prices
in China and that would seem to give copper some support early today. We must
also note that LME stocks declined by a moderately large amount this week and
seem to be pointing to a "re-tightening".

CRUDE COMPLEX

The energy complex was close to forging a
critical technical upside breakout in the action Thursday. Surprisingly the
market continues to upgrade its demand expectations and is apparently even
expecting supply to tail off, even though OPEC still seems to be on hold for the
June 15th meeting. Unfortunately the recent rally in crude oil has come off
declining volume and open interest readings and suggests the buying is either
simple short covering or narrow fresh buying.

NATURAL GAS

In addition to a slightly bearish weekly storage
report, the weather also remains mostly bearish. The weekly gas storage report
showed an injection of 93 bcf compared to estimates between +70 bcf to +115 bcf.
Gas storage now stands at 1,692 bcf, with stocks 228 bcf above year ago and 322
bcf above the 11 year average.